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Zendesk (NYSE:ZEN)
Q2 2018 Earnings Conference Call
Jul. 31, 2018 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to the Zendesk Inc. Q2, 2018 earnings call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator instructions]. Thank you.

Marc Cabi, VP of strategy and head, investor relations, you may begin your conference.

Marc Cabi -- Vice President of Strategy and Investor Relations

Thank you, Chantal. Welcome to our second-quarter 2018 earnings call. We're pleased to report our second-quarter results. Joining me on the call today are Mikkel Svane, founder, CEO, and chair of the board, and Elena Gomez, chief financial officer.

Before we get into results, let me pass along a few reminders. First, our shareholder letter is available at investor.zendesk.com, which details our full results and commentary. As a reminder, we adopted the new revenue standard, recognition standard ASC 606, effective January 1, 2018, and all results today and forward-looking guidance are in accordance with the new revenue-recognition standard. A full reconciliation for ASC 606 resides on our Investor website.

During the course of today's call, we may make forward-looking statements such as statements regarding our future financial performance, product development, growth prospects, ability to attract or retain customers, and ability to compete effectively. The assumptions, risks, and factors that could affect our actual results are contained in our earnings press release and in the Risk Factors section of our prior and subsequent filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2017, our quarterly report for 10-Q for the quarter ended March 31, 2018, and our upcoming quarterly report on Form 10-Q for the quarter ending June 30.

We undertake no obligation to update these statements after today's presentation or to conform these statements to actual results or to changes in our expectations, except as required by law. Please refer to today's earnings release for more information regarding forward-looking statements. Finally, during this call, we will present both GAAP and non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, not as a substitute or in isolation from our GAAP financial information.

You can find additional disclosures regarding these non-GAAP financial measures in today's earnings press release and in our shareholder letter and for certain non-GAAP financial measures for the prior period in the earnings press releases for those periods, all of which are available on our website.

With that introduction, I will turn the call over to Mikkel.

Mikkel Svane -- Chairman and Chief Executive Officer

Thank so much, Marc, and I'll definitely try to keep it brief, too. It's been a great first half of the year for us. Now I am proud of our results this quarter. Our revenue grew 39% and that marked the second quarter in the row of year-over-year accelerated growth for us.

We are seeing a few factors driving this growth. Demand continues to increase for modern software like ours, and companies are turning to our products as part of their efforts to transform the customer experiences. At the same time, we made some major progress on our priorities for the year.

We have matured our omnichannel offerings and accelerated our move up-market. This past quarter, we launched an important product Suites the Zendesk Suite which is our new omnichannel bundle. It has gotten off to a strong start and is performing well ahead of our expectations. We believe it has put in an even stronger competitive position, and we also launched this quarter the Zendesk Connect that is for proactive customer engagement, which we think is very much the future of customer service.

So we continue our momentum in moving up-market with our enterprise customers. We landed more big deals and new logos, and a lot of these have a lot of potential for expansion opportunities in the future. This past quarter, we closed over 60% more deals with an average contract value of $50,000 or more compared to a year ago. We further advanced our enterprise product features for collaboration of workflow and our go-to-market teams expanded their up-market activities.

Our sales leadership and sales teams continue to drive new and expansion business and improve their productivity. Because of our results, we have increased our guidance for the remainder of the year. We now expect our full-year revenue for 2018 to range between $582 million and $586 million. Our progress continues to increase our confidence in our plan to achieve a $1 billion in revenues by 2020, and we are making investments in our people, products, in our processes to achieve a long-term goal of being a company with a multibillion-dollar sales.

Personally, I'm very proud of the progress we made to expand into entirely new areas of a business. We are proving that our products and our mission have broad appeal for both the new start-up and also for global 2000 companies. And we're ready to expand a global reach farther to help our customers build the best experiences for their customers.

And with that thank you so much and back to you Marc.

Marc Cabi -- Vice President of Strategy and Investor Relations

OK, before taking questions I do want to cover one housekeeping item and it relates to how we disclose our paid customer accounts. So customers that purchase multiple products of Zendesk a la carte are counted as a customer for each product they purchase. For instance, if a customer purchases Support, Chat, Talk, and Guide a la carte that would have counted as and thus count as for paid customer accounts. With the introduction of the Zendesk Suite which Michael alluded to being very successful?

Customers may now buy multiple products in one SKU. We are reflecting the purchase of the Zendesk Suite by a customer as only one paid account instead of as multiple paid accounts for the multiple products included in the SKU. We're currently including paid customer accounts of the Zendesk Suite in the all other products category. We anticipate the introduction of Zendesk Suite and other future bundled products to change how we might disclose customer count in the future.

And we're working to evolve the way in which we provide insight to investors about those customer activities to match our evolving business.

We'll have more on that as we enter 2019 and now we will take your questions. Chantal?

Questions and Answers:

Operator

[Operator instructions]. Your first question comes from Bhavan Suri with William Blair. Your line is open.

Bhavan Suri -- William Blair & Company -- Analyst

Hey, everybody, congratulations -- it was just a great quarter. I just wanted to focus a little bit on the enterprise sales motion. Obviously, you're seeing really nice traction especially with sort of the accounts with ACV over greater than 50K. I guess two questions just to start off there: 1) sort of has Norm since he come in made any changes that you're seeing sort of enhance that motion? And then 2) you sort of implemented the solution selling process and sort of that focus.

Has that affected productivity or is this sort of a more natural ramp that you see in play out of the last I'd say six to nine months?

Elena Gomez -- Chief Financial Officer

Yes. So I can take that. So a couple things Norm has done. One is when we set out the year, one thing that we are very focused on, and he has done a nice job in executing this, is really keeping the stability of the sales force as we entered into the year and as we're entering into the second half of the year.

And but we've also made investments in named account executives which is sort of a new role for us so to speak. We've already invested in names late last year, named account managers. And now we're also investing in named account executives.

And so that's one thing, and those are really focused on enterprise customers and we appreciate that that selling motion is totally different, more tools to cost, etc. And of course, we continue to begin our investment more focused on the partner ecosystem.

Mikkel Svane -- Chairman and Chief Executive Officer

Hey, Bhavan, I just want to point out here that it's of course not only entirely on Norm hereby ...

Elena Gomez -- Chief Financial Officer

Yes, fair enough.

Mikkel Svane -- Chairman and Chief Executive Officer

Props to our marketing organization and the marketing and sales working tightly together. Marketing has definitely also kind of helped us with a more enterprise-friendly story and also better enterprise-oriented activities to drive demand.

Bhavan Suri -- William Blair & Company -- Analyst

Got it, thanks, Mikkel, thanks, Elena. One other one from me. Technical difficulty] and I suspect faster than we'd anticipated and you mentioned faster than you'd anticipated, I guess are you seeing that across the entire class of customers? Is that more appealing to SMB because it's sort of fully integrated? Is it more [Technical difficulty] and I guess when to expect [Inaudible] two, three quarters.

Mikkel Svane -- Chairman and Chief Executive Officer

Bhavan, you're falling out a little bit here but I think you're talking about the performance of the Suites. We definitely like targeting at our small and midsize organizations initially. And we still need to feel that we need a few more quarters to probably talk about how it performs but we have seen very positive results this quarter.

Operator

Your next question comes from Philip Winslow with Wells Fargo. Your line is open.

Philip Winslow -- Wells Fargo Securities -- Analyst

Hey, guys, thanks for taking my question and congrats on a great start to the year here. I just want to focus in on the Suites as we just mentioned, it's obviously trending ahead of your plans but to the team when you think about sort of opportunity to sell that into the base for let's say reducing sales friction for if for new customers how do you think about just the opportunity of the Suites here to drive ASPS and kind of how are you thinking about ASPS in that context going forward here?

Mikkel Svane -- Chairman and Chief Executive Officer

We definitely see it improving ASPS and we are focusing on of course making a really, really smooth for new customers but there's a lot of demand also with existing customers.

Elena Gomez -- Chief Financial Officer

Yes. I mean, I think about, Phil, as an opportunity to improve our efficiency and productivity frankly over time as any good CFO would think about but obviously the more we can sell a complete solution up front and not have four different conversations or two different conversations but one conversation over time that will create some productivity but also get a footprint with those customers a lot earlier in their lifecycle, which is always goodness for us. And in the early days obviously we're seeing higher ASPS but I think it's a little too soon to call it a trend.

Operator

Your next question comes from Jesse Hulsing with Goldman Sachs. Your line is open.

Jesse Hulsing -- Goldman Sachs -- Analyst

Yes, thank you, hey, guys. I wanted to ask about your new products also but in kind of a different context. I'm curious what you're seeing with regards to enterprise interest for some of these products that you've ramped to being enterprise ready? Are you starting to sell those into in your existing and new enterprise customers? And I guess how do you think the contribution from newer products of enterprise customers will wrap over the next year?

Mikkel Svane -- Chairman and Chief Executive Officer

Well, so we're definitely working on two fronts here. I think that with the products like the Suite we're really focusing on really smooth, seamless adoption among smaller and midsize organizations, not that it doesn't have a saying in the enterprise [ph] but that really where our focus is. But at the same time we're working on kind of the enterprise capabilities and the enterprise-readiness of our other products, so like the Guide product's a good example of that, where initially it was, I think, we tied it more to small and mid-sized business, but with some of the news capabilities we're really kind of getting into the enterprise and can help them with really, really sophisticated workflow for content management, content publication, and self-service across the organization. So we're working on two fronts here.

Make sense, Jesse?

Jesse Hulsing -- Goldman Sachs -- Analyst

Yes, yes, that makes sense. I guess I'm curious if I take a typical enterprise customer, say, in the 50K-plus cohort, maybe it's a $100,000 deal or something like that and they add Message and Guide in addition to and maybe Talk in addition to the core Support. How much of uplift does that provide to that deal? And are you starting to see that dynamic?

Marc Cabi -- Vice President of Strategy and Investor Relations

Yes. So, I mean, all of our pricing is on the webpage but, Jesse, I mean, we have an opportunity with a customer taking everything, moving an enterprise $100-per-agent per-month seat to upwards of $200 or better depending on what they take. So there are a lot of opportunities for either larger sales up front where a customer might take Talk, Chat, and Support or Guide that can get you closer to double their starting price. And again a lot of our customers will use a mix of products, especially in the enterprise.

They may not buy everything one for one. So you want to be really careful how you model that but that's kind of how you would lay it out.

Operator

Your next question comes from a Stan Zlotsky with Morgan Stanley. Your line is open.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Hi, guys. This is Hamza Fodderwala for Stan. How is it going? I just wanted to dig in a little bit on the strong billing growth in Q2. To what extent was a large customer growth like you mentioned before any changes in the mix of annual versus quarterly billing contract?

Elena Gomez -- Chief Financial Officer

We have been continuing to improve as we move up-market. Obviously there's more annual billing but because we have such a large base of smaller customers, that movement doesn't swing that quickly but definitely what we're seeing more often is annual billing in particular as we get larger and larger customers. But there's nothing we're doing unnatural to drive that.

Hamza Fodderwala -- Morgan Stanley -- Analyst

Got it. And then my second question was the early Suites adoption looks like it's going really well. What's the profile the customers adopting the Suites? Is it fair to say that the average two customers bigger and more complex enterprise organization?

Elena Gomez -- Chief Financial Officer

No, and Mikkel alluded to that earlier, so initially it's really to remove the friction of our smaller more SMB customers over time that may change but we view that as an opportunity to land customers and over time expand with them.

Marc Cabi -- Vice President of Strategy and Investor Relations

But Hamza it has been used by some of our larger customers as well. It is a frictionless experience for all customer sizes. So we've seen evidence where customers of a larger size over a hundred agents also adopt the product.

Operator

Your next question comes from Kirk Materne with Evercore ISI. Your line is open.

Kirk Materne -- Evercore ISI -- Analyst

Yes, thanks very much and I add my congrats on the quarter, obviously another really good quarter in terms of the number of deals over $50,000. I was just wondering it is a little bit nuanced for, so I was just wondering, is that sort of a really good growth in sort of smaller enterprise deals that you're landing or are you seeing a lot of SMB deals sort of get bigger? I realized they all end up in the same spot, I was wondering if it's coming from where the run-rate business getting bigger or the enterprise momentum.

Marc Cabi -- Vice President of Strategy and Investor Relations

So the purpose of those metrics being around for over three years is really to demonstrate those deals we touch with our higher-end sales reps Account Executives. So it's an indicator of business we're doing based on touch, based on relationships with our AES and SAE years. And that number growing healthfully is an indicator of both the land and expands opportunity for us. And also shows some of the productivity in our sales teams, and having it up 62% was a nice number for this quarter.

Kirk Materne -- Evercore ISI -- Analyst

All right and then in the letter, you disclosed professional services growing faster than the overall mix. I was actually curious about how that's potentially helping you bring on new partners, obviously, services partners you need sort of the incentive to build a practice around you all. I was wondering if you just give us an update on so your partnering opportunities as you head into the back half of the year. Thanks.

Elena Gomez -- Chief Financial Officer

Yes. And, as you know, we have an open slot for the head of the partner role, so hopefully, we'll have more news on that soon but in the meantime you're right. We've been seeing more pro serve simply as we move up-market that's more of an expectation but certainly, it's helping us with the narrative around, building a practice around Zendesk and the ability to help with either change management or and/or more complex implementations that we see as a move up-market.

Operator

Your next question comes from Derrick Wood with Cowen and Company. Your line is open.

Derrick Wood -- Cowen & Co. -- Analyst

Great, thanks and nice job on the quarter. Do you guys have several new mechanics in your model? You've got increased enterprise presence, you've got now a full product bundle, you've got more annual invoicing. I'm just curious how that may be impacting the makeup of your net revenue retention rates? I mean I think the makeup, you've got churn, and you've got agent expansion, plan upgrades, product cross-sell. Can you drill down on how these factors underneath the hood may be changing at all?

Elena Gomez -- Chief Financial Officer

Sure. So first I'll start by saying that with that expansion rate we've have always said it'll range between 110 and 120 just to get our own grounded. And in the more recent quarter we said for the balance of this year anyway we'll be in the high teens. So when you disaggregate that net expansion rate, obviously, the gross expansion and churn of contraction are the key components of that.

We're seeing a little bit improvement in churn and contraction simply because we're moving up-market but it's still early in that and at the same time we're seeing continued expansion. And keep in mind that new business also affects that metric because as we bring on new business obviously the mix shifts but with enterprise and product that is allowing our expansion rates to grow over time. And what we're seeing is in addition to just adding more agents, we're seeing more use cases in departments or we're seeing multiple product adoption playing out as we thought it would.

Derrick Wood -- Cowen & Co. -- Analyst

Great and obviously you guys took revenue guidance pretty considerably but you did take up I guess you didn't change the operating income. So expenses came up I was just wondering what is incremental on the expense spend. Is it data center? Is it professional services build-out? Is it core sales and marketing headcount? Where are the expenses for dialing up as you look in the second half of the year? Thanks.

Elena Gomez -- Chief Financial Officer

Yes, sure. And so we're really focused on having a strong start to 2019, and so to that end obviously we're making sure we have the right product capacity on the street. So we're doing some hiring for 2019 in the back half. We're continuing our investments in partners.

We believe that's an important investment for us to get going this year to see some results in the upcoming years. And then I think the other thing is we are investing a little bit more on our product than we originally set out in the plan. And that's somewhat intentional; again, we want to start the year strong for next year. And to the extent, we can pull in some investments from 2019 into 2018.

We're trying to do that opportunistically, and at the same time still meeting our op margin guidance so we gave the start of the year.

Operator

Your next question comes from Brent Bracelin with KeyBanc. Your line is open.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Thanks for taking the question. I had one clarification and one question around kind of guide. The clarification is really just around the acceleration that we're seeing in deferred, short-term deferred revenue growth. I think that's accelerated for now three quarters in a row approaching 50% growth.

If I look at the contribution from new customers that's the highest we've seen in two years. I guess as a clarification as you think about these improving fundamentals how much of this is just improving sales productivity or kind of mix to kind of larger enterprise customers and larger lands.

Elena Gomez -- Chief Financial Officer

I would say it's not any one single thing, one single lever, if you will. I think it's a combination of a very stable, strong leadership in the sales org. I think it's having our head of marketing be on board for now almost a year and seeing that really show up in our rigor, around the pipeline and how we look at that. And I also think it comes back to the product innovation we've made over the last 12 months.

And so I don't think you can point to any one specific facto. We have seen our new business be super healthy this year. So that's maybe slightly different than the trends we've had in the last couple quarters but that's the only thing I would call it this slightly different.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Got it, very helpful color there. And then shifting gears to the Guide business, if I look at kind of the attach rate of kind of Guide, Talk, and other categories, that's gone from I think 7% of Support customers in the last year to 17%. How much of that is increasing interest in Guide, Talk? Walk us through the attach rates that you're seeing and what's driving the increasing attachment?

Marc Cabi -- Vice President of Strategy and Investor Relations

So we've been over the last year we had mentioned that we would expect our new products to become much more meaningful. And we're seeing that in 2018. So it's not just one product, it's multiple sets of products that are growing well. Guide specifically has been a really strong received product because they made a lot of advances that are very attractive for enterprises to use our Guide product in that category.

And then remember that our Suite, the Zendesk Suite offering is also being accounted for their beginning in the second quarter.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Got it. So there is some contribution from the Suites in that number.

Mikkel Svane -- Chairman and Chief Executive Officer

That's right.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Perfect, that's all I had. Thank you.

Operator

Your next question comes from Ross MacMillan with RBC Capital Markets. Your line is open.

Ross MacMillan -- RBC Capital Markets -- Analyst

Well, thanks so much and congrats from me as well. My first question, just, I know you've been helpful on that growth in contracts signed with over 50K of ACV value, and you've helped us sort of understand the average contract size of those deals, commenting whether it's larger year over year or same or down. I wondered if you could provide that color on the quarter?

Marc Cabi -- Vice President of Strategy and Investor Relations

Sure. So it was up more than 60% in deal-count and just below neutral. So just slightly negative on deal size. So in this quarter, we saw a lot of new business activity as part of that number, which we view as a good land and expand kind of opportunity for us as we go through the rest of the year.

Ross MacMillan -- RBC Capital Markets -- Analyst

Thanks, Marc. And just maybe a qualitative one on the pipeline for the rest of the year, given the Zendesk Suite is doing better than you anticipated. I was just curious how are you feeling about that second half pipeline and is Suites contributing significantly enough for you to feel better about the second half? Thanks.

Elena Gomez -- Chief Financial Officer

So I'll just talk about pipe broadly, not necessarily particular to Suite, but I think our pipeline -- and we look at it obviously on a weekly basis, and when I look at the pipe for the second half of the year I feel confident we have a healthy pipe, pipe that will allow us to meet our goals. In terms of Suite, I think that's still an opportunity for us for the second half of the year. The momentum is good. So I can't pinpoint one to the other but we're seeing strong interest in that already from our existing customers and new customers.

Operator

Your next question comes from Brad Sills with Bank of America. Your line is open.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Hey, guys, thanks for taking my question. One on Connect, please. I know it's early but since the launch any color on where you've seen interest in particular use cases whether it's in the pipeline or some early deals that have been closed for Connect?

Mikkel Svane -- Chairman and Chief Executive Officer

Well, Connect, it's a little bit of a different beast for us. And we are still in the process where we handhold all our early customers. I think we see most of the demand in kind of companies trying to kind of rethink the customer experience and the customer engagement. And where it's tightly integrated to their product organization.

And so we're doing some really interesting things but it's a whole different type of kind of engagement with the customer that we have with the Connect product compared to our other products. And we definitely have like a long-term view with what you want to do with that product.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great, thanks, Mikkel. One more if I may please on international, saw nice acceleration here particularly in Asia Pac. Any color on what's driving that maybe some countries or regions within Asia Pac? Thank you so much.

Marc Cabi -- Vice President of Strategy and Investor Relations

So internationally we have been and we stated this in past quarters, opening new countries in Asia. The two countries that I particularly see good activity around are India and then also Japan where we've expanded our team there. LATAM, we've opened up Mexico, it's a new market for us that we're really spending more time in, and it's been healthy there. And that's one of the opportunities internationally as we can continually selectively open direct investment in new countries as we see fit see an opportunity.

Operator

Your next question comes from Tom Roderick with Stifel. Your line is open.

Parker Lane -- Stifel Financial Corp. -- Analyst

Hello, it's actually Parker Lane in for Tom. Thanks for taking my question. If we look at the sequential and annual decline in gross margins, I was wondering if you could discuss how much that is related to the investments and pre-sales technical consulting, pro services versus just a duplicate of costs of AWS move.

Elena Gomez -- Chief Financial Officer

Yes. It's a good question. It's primarily all related to our double sort of investment right now in our infrastructure. So the migration AWS is under way.

We've gotten almost 75% of our customers to move at this point but to your point, we're paying still for the depreciation on our data centers. That should come to an end at the end of this year. So we expect to have all of our customers migrated and are still committed to driving to that 100-basis-point savings if you will from the AWS migration.

Parker Lane -- Stifel Financial Corp. -- Analyst

Got it and as we think about the conversion of customers to the new enterprise versions. How much of impact should that have on what a typical customer's paying per year? And just how far along are we in that process? Is that something that's going to take multiple years to play out? Or is it sort of a one-time event where we just stand this year.

Marc Cabi -- Vice President of Strategy and Investor Relations

No. I mean this is going to be an ongoing event and not every customer will buy the Enterprise version of our product but if you were to look at our dollar base net expansion rate where that would show up. The first and primary driver of that metric is deep growth, agent growth either because we're creating new use cases in customers or they're naturally growing with Zendesk. The second most important factor is customers moving from say pro to enterprise, changing subscription plans.

And the third one which is actually starting to become a more interesting component is cross-sell of new products. So we're starting to see that play a role. So that's kind of the order of importance on the dollar base net expansion rate of those activities.

Operator

Your next question comes from Alex Zukin with Piper Jaffray. Your line is open.

Scott Wilson -- Piper Jaffray -- Analyst

Hi, this is Scott on for Alex. Maybe to start off a question on some of your newer marketing and management activities specifically at the kind of the regional future of CX events you've been hosting. Curious how these events have been received and what if any benefits you've seen early on from either pipelines or new business?

Elena Gomez -- Chief Financial Officer

It's been so far -- and it's lost on me, how many events are we doing? Eight --

Marc Cabi -- Vice President of Strategy and Investor Relations

I think we are doing 100 this year.

Elena Gomez -- Chief Financial Officer

Yes. And so Jeff came in and really changed the focus of those events to be a bit more user product oriented. And we found great success with that both with our new and existing customers. And the early read of that is we're definitely seeing pipeline come from those events.

So it's always of course hard to measure exactly but we're definitely seeing deals advance, rich conversations happening in and around those events. A lot of our executives are at those events to engage with some of the more sea level customers. So we're definitely viewing them as a vehicle to engage with our prospective customers and existing customers as well.

Scott Wilson -- Piper Jaffray -- Analyst

Understood, sound good. Maybe one more question just going in on the partner channel a little bit more. If I'm not mistaken I think one of Norm's first big hires is going to be an individual to lead that. I'm curious if he's in place then I'm also curious kind of what initial receptivity on the end of partners has been today? Are we attracting any global GSIs at this point or is it more regional players this year.

Thanks.

Marc Cabi -- Vice President of Strategy and Investor Relations

So Elena mentioned this earlier, we do have an open opportunity for a global worldwide head of partners and channels. And we believe that we'll have more news to tell you here on that in the next couple quarters. We have been investing regionally in channel and partner activities for the past two years. And Norm has been really focused on what each of those teams regionally are doing.

And we've seen success regionally and we think there's an opportunity for us to have a global program but there'll be more to say on that later.

Operator

Your next question comes from Jonathan Kees with Summit Insights Group. Your line is open.

Jonathan Kees -- Summit Insights Group -- Analysts

Great, thanks for taking my questions, and I'll add my kudos to the quarter results. Mikkel, some of the new EMEA office is in Dublin though. What's wrong with Copenhagen? So anyway my real question is on the accounts. I was just curious in terms of other -- that's increased dramatically.

Is that because it's now, the Suite is in there and then why is Chat also decreasing,? I's been decreasing last several quarters. That's now being marshaled in the Suitess? Just more color on that it.

Marc Cabi -- Vice President of Strategy and Investor Relations

Yes. So let me talk on the account side real quickly. So as I stated, a fair representation of our accounts we give you at the back of the shareholder letter, a unique logo count but our paid accounts, if they were sold a la carte were counted for two, three, four times, depending on the number of accounts a customer subscribed for it with. With the Zendesk Suite, we are accounting for that as one customer and right now that customer only shows up in the other line.

So if that customer doesn't show up in Support, Chat, Talk, or anywhere else, it shows up in the other line.

With another, there's also Guide and Talk, both of those products have also been seeing very healthy growth. So there's a little bit of a combination of factors in the other category impacting those numbers. Chat specifically a year ago we elected to raise our low-end price point for Chat, which has resulted in a higher-quality customer but as a result of that some of the legacy customers we have been turning off at the lower price points and/or a Chat customer may be buying the Suites and ends up not being counted as Chat. So there are a lot of things going on in Chat.

We're very happy with the revenue progress of Chat as it relates to our total product portfolio.

Operator

Your next question comes from Rakesh Kumar with UBS. Your line is open.

Rakesh Kumar -- UBS --- Analyst

Hi, thanks for taking my question. I wanted our drill down on guidance. Your second-half guidance calls for continued 30% plus growth despite a tougher comp. What are some of the factors driving increased confidence in second half as you lap out improvement in enterprise sales productivity from last year?

Elena Gomez -- Chief Financial Officer

It's a good question. We definitely have seasonal businesses. We're moving up-market to the enterprise and so it's not uncommon for us to have a very strong SMB growth in Q1 certainly and well into Q2 but as you get into the third and fourth quarter you start seeing more of that enterprise business. And as we look at all the factors that we do whether its pipeline, sales stability, and the investments we are making in, named account executives, etc.

When you look at that collectively that's what gives us the confidence in the guide. And we really haven't changed our guidance approach. We put a lower probability obviously on the enterprise business than we do on the more predictable SMB business.

Rakesh Kumar -- UBS --- Analyst

And then I have a follow-up on the velocity business, you have talked about getting more efficiency through teleservice model. I was hoping to see if you can talk about any progress on that front? And how do you expect it to evolve over the next few months?

Elena Gomez -- Chief Financial Officer

We're constantly fine-tuning that web try-and-buy experience. In other words, we're trying to take as much friction out of that buying experience and that selling motion. And Jeff, our new marketing leader, and his team have really oriented their focus on making sure that is incredibly swift, low friction experience. And we're seeing that play out in the strength of our business in the first half of the year.

Operator

There are no further questions at this time. I will now turn the call back over to the presenters.

Marc Cabi -- Vice President of Strategy and Investor Relations

Well, thank you very much for joining our second-quarter earnings call. We will talk to you again in the third quarter.

Operator

[Operator signoff]

Duration: 38 minutes

Call Participants:

Marc Cabi -- Vice President of Strategy and Investor Relations

Mikkel Svane -- Chairman and Chief Executive Officer

Bhavan Suri -- William Blair & Company -- Analyst

Elena Gomez -- Chief Financial Officer

Philip Winslow -- Wells Fargo Securities -- Analyst

Jesse Hulsing -- Goldman Sachs -- Analyst

Hamza Fodderwala -- Morgan Stanley -- Analyst

Kirk Materne -- Evercore ISI -- Analyst

Derrick Wood -- Cowen & Co. -- Analyst

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Ross MacMillan -- RBC Capital Markets -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Parker Lane -- Stifel Financial Corp. -- Analyst

Scott Wilson -- Piper Jaffray -- Analyst

Jonathan Kees -- Summit Insights Group -- Analysts

Rakesh Kumar -- UBS --- Analyst

More ZEN analysis

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